The PJM capacity auction results once again highlight the critical need to immediately bring new generation, storage, and demand-side resources on-line. Wholesale electricity prices have once again increased in the PJM region, going up for most customers from $269.92/MW-day during the previous auction to $329.17/MW-day, even though consumers were protected from an even more significant increase by the newly implemented price cap.
High auction prices are a direct result of insufficient supply to meet current demand for power. Though prices do provide a strong “build” signal for new generation, projects seeking to respond to that signal face several barriers that must be overcome.
PJM’s capacity auction is intended to ensure that sufficient resources will be available to meet electricity demand in a future year. Prices in the auction are a reflection of demand (based on PJM’s load forecast) and supply (based on offers put in by existing and new generation, storage, and demand-side resources). In last year’s auction, prices cleared at $270/MW-day, which was 800% above the prior year; those prices started to hit consumers’ bills in June of this year, resulting in as much as a 20% cost increase for some customers. This year’s auction results come after a series of tweaks made by PJM that were intended to result in lower prices, but those changes were overwhelmed by 5.4 GW of load growth in this auction, attributable largely to data center growth.
The sustained high prices for a second consecutive auction indicate that PJM’s modifications were not enough to compensate for the fact that demand is growing faster than new supply is entering the market. While the rapid increase in demand in the PJM region from data centers and other large loads is no longer breaking news, this demand growth has far outpaced the normal timeline for infrastructure planning and development – in other words, a data center can be constructed in 18 months, while a generator large enough to serve a large data center can take more than five years to develop and construct.
At the same time, PJM’s interconnection queue —the process by which new generation and storage projects are granted permission to connect to the power grid—has been closed since 2022, preventing thousands of projects from coming on-line and lowering prices. While PJM is working to transition to what should hopefully be a faster queue process, the result of the pause on new requests is that many projects have been stuck in the closed queue for over six years, a significant delay that adds additional risk and cost and is likely to contribute to some otherwise viable projects never getting built.
Given still-rising demand and the too-slow trickle of new supply, PJM and states in the PJM region now face a clear need to accelerate deployment. The recent rollback of federal clean energy tax credits only underscores the urgency of building new projects now to fully realize available incentives. Continuing to reform PJM’s interconnection queue by fully implementing improvements already underway and by going beyond these reforms is a key opportunity to unlock new resources. PJM has stated that they are hopeful they will be able to reopen the closed interconnection queue in late 2026.
New clean energy resources entering the queue could be built fastest and possibly be on-line by the end of the decade, whereas natural gas and nuclear generation would take much, much longer – all well past the resource adequacy concerns PJM has identified in the 2027-28 timeframe. In addition to steps by PJM to speed up the interconnection process, states can accelerate the path from interconnection agreement to commercial operation by streamlining siting and permitting processes.
Beyond critical improvements to interconnection, siting, and permitting, a new resource compiled by Advanced Energy United outlines a series of additional steps that PJM and states can take to unlock new capacity: accelerating load flexibility and virtual power plants (VPPs), utilizing fair interconnection fast-tracks, and deploying advanced transmission technologies.
In addition to these tools, PJM and states must work toward medium and longer-term reforms that will deliver affordable, reliable electricity to the region: adopting incremental capacity reforms such as a transition to a seasonal capacity auction; restoring stability and predictability to the capacity market; ensuring efficient hedging and bilateral contracting activity to complement the capacity market; pursuing ancillary services reforms to better value resources’ capabilities; reforming load forecasting to ensure we are preparing for the right level of demand growth; adopting long-term, comprehensive transmission planning (in compliance with FERC Order No. 1920); and conducting additional oversight of locally planned transmission to ensure a robust and cost-effective transmission grid.
The key to lowering auction prices is to quickly bring on new generation supply, and we can’t afford to wait until 2026 for PJM to reopen the closed interconnection queue. Given the magnitude of this crisis, PJM, transmission owners, project developers, and states need to find additional ways to accelerate the interconnection process immediately, so project developers can begin to propose new projects for the queue that reflect today’s economic realities and come on-line in time to lower prices and ensure resource adequacy. A coalition of nine PJM states announced yesterday that they would host a technical conference to discuss their many concerns with PJM’s handling of critical energy market issues. Hopefully, this and other efforts at PJM and in the states will lead to meaningful reforms that result in a more efficient, competitive, reliable, and affordable electric grid in the PJM region.